EXHIBIT 10.10
INCENTIVE BONUS AGREEMENT
AGREEMENT dated as of ________, 1997 ("Agreement") between Valero Refining
and Marketing Company, a Delaware corporation (the "Corporation"), and Xxxxxxx
X. Xxxx (the "Executive"),
WITNESSETH:
WHEREAS, for the reasons more fully set forth in the minutes of the
Compensation Committee (the "Committee") of the Board of Directors of the
Corporation, the Committee has approved the execution, delivery and performance
by the Corporation of incentive bonus agreements, substantially in the form of
this Agreement, between the Corporation and certain officers and other key
executives of the Corporation and its subsidiaries, including the Executive;
WHEREAS, should the Corporation become involved in any situation leading to
a Transaction (as hereinafter defined), the management of the Corporation has
determined that Executive is a key employee who would be essential to the
completion of such Transaction and that, in addition to Executive's regular
duties, Executive may be called upon to assist in the assessment of any third-
party or internal proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Corporation and its shareholders
and participate in successfully completing any Transaction;
NOW, THEREFORE, to assure that the Corporation will have the continued
dedication of the Executive, and the availability of Executive's advice and
counsel as to the best interests of the Corporation and its stockholders in
connection with the completion of any Transaction, and to
induce the Executive to remain in the employ of the Corporation and/or its
designated subsidiaries, and for other good and valuable consideration,
Corporation and Executive agree as follows:
1. Services During Certain Events.
------------------------------
A. In the event that the Corporation publicly announces (or privately
advises Executive that the Board has so determined) that the Corporation will
solicit or consider proposals leading to a Transaction, Executive agrees that he
or she will not voluntarily leave the employ of the Corporation or its
subsidiaries, and will render the services contemplated in the recitals to this
Agreement and in any employment agreement between the Corporation and Executive,
until the earlier of (i) such date as the Corporation has abandoned or
terminated efforts to effect a Transaction, or (ii) 30 days following written
notice to the Corporation of such termination of employment.
B. The provisions of Paragraph 1.A notwithstanding, Executive may
terminate employment for any reason prior to the occurrence of such announcement
(or advice) and, following such announcment (or advice), may terminate
employment prior to the date specified in Paragraph 1.A through retirement,
total and permanent disability, or for Good Reason. For purposes of this
Agreement, "Good Reason" means (i) the occurrence of any event or circumstance
which, if occurring following a Transaction, would render Executive's
termination of employment "involuntary" (as defined in Paragraph 2.H), or (ii) a
breach (other than an insubstantial failure which is remedied by the Corporation
promptly after receipt of notice thereof from the Executive) by the Corporation
of any provision of this Agreement.
2. Incentive Bonus Payment.
-----------------------
A. In the event that, within two years following the date of this
Agreement, a Transaction occurs, then, except as set forth in Paragraph 2.C.,
the Corporation will pay to Executive or to
2
Executive's estate (in addition to any base salary, bonuses, incentive
compensation, severance payments, expenses, vacation, benefits, benefit plan
distributions and other amounts which would otherwise be payable to Executive,
to the extent not theretofore paid), as compensation for services rendered to
the Corporation, a cash amount (subject to any applicable payroll or other taxes
required to be withheld) equal to one (1) times Executive's highest annual rate
of compensation in effect at any time during the 36-month period ending on the
date of such Transaction, such payment to be made in accordance with Paragraph
2.B. As used herein, "annual rate of compensation" shall mean the aggregate
regular base salary paid or payable to Executive by the Corporation with respect
to any period of 12 consecutive months.
B. The cash amount payable to Executive pursuant to Section 2.A. shall be
due and payable in the following increments:
(i) 60% on the date on which a Transaction is consummated; and
(ii) 40% on the date which is six months following the date specified
in Paragraph 2.B(i) above.
In the event that Executive's employment with the Corporation or its
subsidiaries (or, if Executive accepts employment with a Divested Entity, then
with such Divested Entity or its subsidiaries) is terminated prior to any of the
dates specified above, and payment to Executive is not otherwise excused
pursuant to Paragraph 2.C. below, then on Executive's Termination Date, the
Corporation shall pay to Executive the remaining amounts which Executive would
have been entitled to receive had he remained in the employ of the Corporation
or a Divested Entity until such dates and which have not theretofore been paid.
3
C. The foregoing provisions of this Paragraph 2 notwithstanding,
Executive shall not be entitled to receive, and the Corporation and, if
applicable, the Divested Entity shall not be obligated to make, the payments
specified in Paragraphs 2.A and 2.B if either:
(i) Executive's employment terminates prior to the occurrence of the
Transaction, unless such termination of employment results from Executive's
death or total and permanent disability; or
(ii) The payment is to be made under Paragraph 2.B(ii) and Executive's
termination of employment occurs following the occurrence of the
Transaction under any one of more of the following circumstances:
(a) Executive's termination of employment is "voluntary;"
(b) Executive is terminated by his or her employer company for
or "cause";
(c) Executive retires under the Corporation's Pension Plan (or,
if Executive is then an employee of a Divested Entity or its
subsidiaries, under such entity's similar tax-qualified pension plan);
or
(iii) in connection with a Divestiture, Executive is offered but
declines to accept Qualifying Employment with the Divested Entity or its
subsidiaries. As used herein, "Qualifying Employment" shall mean any
position, with a principal place of employment in the United States, as a
full-time, regular employee of the Divested Entity or one of its
subsidiaries, wherein (a) Executive's base salary is at least equal to
Executive's base salary immediately prior to the Divestiture, (b)
Executive's benefits (to include, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental
death and travel
4
accident insurance plans and programs, vacation benefits, retirement
benefits, participation in stock option, restricted stock and other
employee stock plans, and participation in executive incentive bonus
programs) are substantially comparable with the benefits to which Executive
was entitled prior to the Divestiture, and (c) if Executive is required to
relocate to a new principal place of employment, Executive is reimbursed
for all expenses reasonably incurred in such relocation (including taxes
payable on such reimbursement and on such gross-up payment; costs of
packing, moving and unpacking household goods; reasonable expenses of
travel, meals and lodging in moving to the new location; reasonable costs
of temporary living expenses at the new location; and assistance in selling
Executive's home commensurate with the assistance customarily provided by
the Corporation to transferred executives prior to the Divestiture,
including acquisition of such home by the Corporation at an appraised fair
market value).
D. Definition of Termination Date. For the purpose of this Agreement,
------------------------------
"Termination Date" shall mean Executive's last day of employment with any of the
Corporation or any of its subsidiaries, or with a Divested Entity or any of its
subsidiaries, as the case may be.
E. Definition of Transaction. For the purpose of this Agreement, a
-------------------------
"Transaction" shall mean and include any one of more of the following events;
provided that, prior thereto, such event has been recommended or approved by a
majority of the Board of Directors of the Corporation or of a duly authorized
committee thereof:
(i) consummation of a reorganization, merger or consolidation
involving the Corporation (other than a transaction solely involving one or
more subsidiaries of the
5
Corporation), or the sale, transfer, or other disposition of all or
substantially all of the assets of the Corporation; or
(ii) Acquisition by any individual, entity or group of beneficial
ownership of sufficient shares of common stock or other securities of the
Corporation such that, but for such prior approval and any concurrent
redemption of the Corporation's Preference Share Purchase Rights or other
actions which may be taken to cause such person or group not to become an
Acquiring Person, would cause such individual, entity or group to become an
"Acquiring Person" within the meaning of that certain Rights Agreement,
dated as of October 26, 1995 between Valero Energy Corporation and Xxxxxx
Trust and Savings Bank, as Rights Agent; or
(iii) Consummation of a Divestiture; or
(iv) any other event determined by the Board of Directors of the
Corporation or a duly authorized committee thereof to constitute a
"Transaction" hereunder.
F. Definitions of Divestiture and Divested Entity. For purposes of this
----------------------------------------------
Agreement, the term "Divestiture" shall mean and include any transaction or
series of transactions (including, without limitation, any spin-off, split-off,
merger or other business combination, or sale, lease, capital contribution,
contractual dedication or other transfer or disposition of securities or assets)
pursuant to which all or a majority of either (i) the assets ("Natural Gas
Assets") constituting the natural gas and natural gas liquids business as now
conducted by Valero Natural Gas Company and its subsidiary corporations and
partnerships, or (ii) the assets ("Refining Assets") constituting the refining
and marketing business as now conducted by Valero Refining and Marketing Company
and its subsidiary corporations, are directly or indirectly owned or controlled
by one or more
6
corporations, partnerships, limited liability companies, joint ventures or other
persons or entities which are not wholly owned subsidiaries of Valero Energy
Corporation (referred to herein as a "Divested Entity"). As used herein, the
term "control" (and with correlative meaning, the terms "controlled,"
"controlling" and "controlled by") shall mean the possession, directly or
indirectly, of the power to direct, cause the direction of or influence the
management and policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise.
G. Definition of "cause". As used herein, "cause" shall mean (i)
---------------------
Executive's conviction of a crime under federal or state law (excluding a
misdemeanor offense not involving moral turpitude), or (ii) Executive's gross
and deliberate disregard of Executive's duties and responsibilities, as
reasonably determined by the Board of Directors of the Corporation (or, if
Executive becomes an employee of a Divested Entity, the Board of Directors of
such Divested Entity) after written notice of such failure and the failure or
refusal by Executive to correct such failure within 10 days from the date notice
is given, or (iii) the continued material impairment of Executive's ability to
fulfill his responsibilities as a result of alcoholism or drug dependency after
written notice of such material impairment and the failure to correct such
impairment with 45 days from the date notice is given or such longer period as
may be required under applicable law.
H. Definitions of "voluntary"/involuntary". In the event that Executive
---------------------------------------
ceases to be an employee of the Corporation, a Divested Entity or their
respective subsidiaries after (i) Executive's base salary is reduced to an
amount below the base salary pertaining immediately prior to the Transaction, or
(ii) Executive's benefits (to include, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs, vacation benefits, retirement
benefits, participation in stock option, restricted stock and
7
other employee stock plans, and participation in executive incentive bonus
programs) are reduced so as not to be at least substantially comparable with the
benefits to which Executive was entitled prior to the Transaction, or (iii)
Executive is required to relocate to a new principal place of employment under
circumstances in which Executive would not be reimbursed for all expenses
reasonably incurred in such relocation (including taxes payable on such
reimbursement and on such gross-up payment; costs of packing, moving and
unpacking household goods; reasonable expenses of travel, meals and lodging in
moving to the new location; reasonable costs of temporary living expenses at the
new location; and assistance in selling Executive's home commensurate with the
assistance customarily provided by the Corporation to transferred executives
prior to the Transaction, including acquisition of such home by the Corporation
at an appraised fair market value), then such termination of employment shall be
deemed for all purposes of this Agreement to be "involuntary." If Executive's
termination of employment is not "involuntary," as defined above, and does not
arise from death, total and permanent disability, retirement or from the
circumstances described in Paragraph 2.C(ii)(b), then such termination of
employment is deemed to be "voluntary" for all purposes of this Agreement. In
addition, if the Executive is offered, but declines to accept, Qualifying
Employment with a Divested Entity or its subsidiaries, and Executive is
subsequently terminated (other than as a result of death, total and permanent
disability or retirement) from employment with the Corporation and its
subsidiaries, then Executive's termination of employment will be deemed to be
"voluntary" for all purposes of this Agreement.
3. Excess Amounts.
--------------
A. Excise Taxes. Anything in this Agreement to the contrary
------------
notwithstanding, in the event any payment or distribution by the Corporation to
or for the benefit of Executive (whether paid
8
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(such excise tax, including any interest or penalties incurred with respect
thereto, being referred to herein as the "Excise Tax"), then the amount payable
to the Executive pursuant to Paragraphs 2.A and 2.B hereof shall be reduced to
such amount (the "Reduced Payment") but not below zero, such that the receipt of
the Executive of the Reduced Payment and all other payments and distributions
pursuant to this Agreement would not give rise to any Excise Tax.
B. No Duplication. Subject to the terms and conditions hereof, if
--------------
Executive has received the payments specified in Paragraph 2 for one
Transaction, Executive shall not be entitled to receive a payment under this
Agreement from the Corporation or a Divested Entity for any subsequent
Transaction. This limitation shall not be construed to prevent Executive from
receiving any payment from the Corporation or a Divested Entity under any
separate agreement, contract or arrangement.
C. Overpayments and Underpayments. All determinations required to be
------------------------------
made under Paragraph 3.A shall be made by the Corporation, which shall provide
detailed supporting calculations to the Executive no later than the date on
which such payment is due. As a result of uncertainty in the application of
Section 280G of the Code at the time of the initial determination hereunder, it
is possible that payments will have been made by the Corporation which should
not have been made ("Overpayment") or that additional payments, which will not
have been made by the Corporation could have been made ("Underpayment"), in each
case, consistent with the calculations required to be made hereunder. In the
event that an Overpayment has been made, any such Overpayment shall be treated
for all purposes as a loan to the Executive which the Executive
9
shall repay to the Corporation together with interest at the applicable Federal
rate provided for in Section 7872(f)(2) of the Code; provided, however, that no
amount shall be payable by the Executive to the Corporation (or if paid by the
Executive to the Corporation shall be returned to the Executive) if and to the
extent such payment would not reduce the amount which is subject to taxation
under Section 4999 of the Code. In the event that an Underpayment has occurred,
any such Underpayment shall be promptly paid by the Corporation to or for the
benefit of the Executive together with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Code.
4. General.
-------
A. Indemnification. If litigation shall be brought to enforce or
---------------
interpret any provision contained herein, the Corporation, to the fullest extent
permitted by applicable law, hereby agrees to indemnify Executive for reasonable
attorneys' fees and disbursements incurred by Executive in such litigation
(including any appellate proceedings, and regardless of whether or not such
litigation is ultimately resolved in favor of Executive), and hereby agrees to
pay pre-judgement interest on any money judgement obtained by Executive,
calculated at the "prime rate" of interest announced by Xxxxxx Guaranty Trust
Company of New York, New York as being in effect from time to time, from the
date that payment(s) to Executive should have been made in accordance with the
provisions of this Agreement.
B. Payment Obligations Absolute. The Corporation's obligation to pay
----------------------------
Executive the compensation and other amounts specified herein and to make the
arrangements provided herein shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Corporation may have
against Executive or anyone else. All amounts payable by the Corporation
10
hereunder shall be paid without notice or demand. Each and every payment made
hereunder by the Corporation shall be final and the Corporation will not seek to
recover all or any part of such payment from Executive or from whoever may be
entitled thereto, for any reason whatsoever, excluding manifest error.
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor shall the
amount of any payment provided for in this Agreement be reduced by any
compensation earned by Executive as a result of employment by another employer,
by retirement benefits, by offset against any amount claimed to be owing by
Executive to the Corporation, or otherwise.
C. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of Executive and Executive's estate, and the Corporation and any
successor of the Corporation, but neither this Agreement nor any rights arising
hereunder may be assigned or pledged by Executive. In the event of a
Divestiture, the Corporation shall cause each Divested Entity to execute and
deliver to Executive a written instrument, in form reasonably satisfactory to
Executive, whereby such Divested Entity shall assume, jointly and severally with
the Corporation, the obligations of the Corporation hereunder, provided that no
such assumption shall operate to release the Corporation from any liability
hereunder.
D. Severability. Any provision in this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11
E. Controlling Law and Interpretation. This Agreement shall in all
----------------------------------
respects be governed by, and construed in accordance with, the laws of the State
of Texas. In the event that the interpretation or application of any provision
of this Agreement is determined in any proceeding to be ambiguous or uncertain,
the parties expressly intend and agree that such ambiguity or uncertainty shall
be resolved in favor of Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
--------------------------------
Xxxxxxx X. Xxxx
VALERO REFINING AND MARKETING COMPANY
By:
--------------------------------
12
